Omaha World-Herald / BY JAKE THOMPSON
Washington, D.C. - America's farmers are so dependent on federal subsidies that they are overproducing and keeping prices for their own crops down, an agriculture expert told a House panel Wednesday.
Daryll E. Ray, an economist at the Agriculture Policy Analysis Center at the University of Tennessee, said thousands of farmers are caught in a vicious cycle where they keep planting on as many acres as possible to keep receiving the government checks that let them stay in business.
He blamed the 1996 "Freedom to Farm" law for forecasting a sharp rise in exports that would have avoided the need for bailouts and for suggesting that farmers would adjust their plantings if prices fell.
"It hasn't worked out that way, and I think we're in denial," Ray told the House Agriculture Committee.
While receiving their government checks, farmers have no incentive to reduce the number of acres they plant, which would curb supply and boost prices for wheat, corn, soybeans and other crops, Ray told the committee.
Ray said farmers also shouldn't look to future exports to help them out. For two decades, grain exports have been flat and now American farmers also face increasingly stiff competition from overseas farmers.
"Prices and incomes can be chronically depressed," Ray said. "And this is not a short-term problem."
That was not unexpected news to the Agriculture Committee, which kicked off a series of hearings Wednesday on federal farm policy. The Freedom to Farm law has come under increasing attack because prices fell in recent years to 20-year lows, prompting Congress to approve three emergency bailout packages. The aid measures sent $25 billion in extra income to farmers and ranchers over the past three years, and a fourth bailout is expected this year.
The committee is considering changes to the 1996 farm bill that set federal farm policy, but also is preparing the groundwork for a new farm law when the '96 one, dubbed Freedom to Farm, expires in 2002.
Keith Collins, the U.S. Department of Agriculture's chief economist, told the committee that without another bailout, net cash farm income is projected to drop from $56.4 billion in 2000 to less than $51 billion this year.
The mood in farm country this year is grim, said Rep. Larry Combest, R-Texas, the Agriculture Committee chairman. Many farmers and farm groups he has talked to feel they are worse off this month than they were at this time a year ago, Combest said.
"I am hearing very distressing news now," Combest said.
While prices have edged up in recent months, farmers' costs could climb this year because of sharply rising energy costs for natural gas, fertilizer (made from natural gas), propane and butane, Collins said.
Driven by energy hikes, the cost for farmers to produce crops and raise livestock could increase an additional $1.5 billion to $2 billion this year and contribute to the drop in farm income.
To boost farm income, the committee examined the two main sources of government subsidies: market transition payments and loan deficiency payments, which guarantee a minimum price for each bushel that a farmer harvests.
Bruce Gardner, an agricultural economist at the University of Maryland, said the deficiency payments have a major flaw: their guaranteed payment encourages overproduction.
Some farm groups and Democrats have urged raising the payments, which have ballooned recently as prices for corn, wheat and soybeans have plunged. Collins warned that the payments could complicate U.S. efforts to persuade other countries to lower their own farm subsidies and trade barriers.
Rep. Saxbe Chambliss, R-Ga., asked the witnesses if Washington has made farmers too dependent on government payments.
"Yes," Collins said. "It seems pretty clear that we have."
He noted that the average net income for a commercial soybean grower last year was $47,000, while the average government payment to a soybean grower was $37,000, most of that income.
Gardner called it an "addictive" situation for farmers who receive the bulk of government payments. Nebraska and Iowa farmers received among the highest subsidies from the government in recent years.
Nebraska and Iowa farmers received among the highest subsidies from the government in recent years.(7)
In 1999, Nebraska farmers received a total of $1.3 billion in direct payments from the government, while Iowans received $1.8 billion, according to USDA figures.
Furthermore, 12 grain-belt states including Iowa and Nebraska, received $12.2 billion of a total $20.5 billion in direct federal payments for regular and emergency subsidies handed out to farmers nationwide.
Copyright 2001 The Omaha World-Herald Company:
